Rate rises 'not over yet'

A STRONG warning of another rise in interest rates will be published tomorrow, ahead of this week's meeting of the Bank of England's Monetary Policy Committee.

While money markets believe increasingly that borrowing has peaked at 4.75%, the latest business trends report from accountant BDO Stoy Hayward points the other way.

'The cooling housing market has signalled to many that rates have peaked, giving some firms a false sense of security,' says the report. 'But increasing inflationary pressures and growth prospects for 2005 make a rise a possibility this winter.'

Its 'optimism index' - which sources UK business surveys - reached a four-year high in October, suggesting buoyant growth next year. BDO partner Peter Hemington warned 'inflation could go above the two% annual target in 2005', triggering higher rates. The report comes after last week's interest rate rise by China, widely seen as a first step towards freeing its currency, the renminbi, from its fixed rate against the dollar. This rate has been kept artificially low by the Chinese, keeping down the price of the country's exports.

An upward revaluation of the currency on the back of higher interest rates would make many products more expensive when exported to Britain.